Indexes
Your ARM is referenced to a particular index that changes. Lenders use that published index to serve as the basis for determining interest rate changes on adjustable rate mortgage loans. As the indices published rate fluctuates, so does your mortgage rate. You can find these indices in your newspaper's Sunday business section.
The most commonly used indices are:
- Treasury Indexed
- Adjustments are based on the average interest rate that the government pays on its debt.
- CD Indexed (certificate of deposit)
- Adjusts to certificate of deposit index.
- LIBOR (London interBank offer rate)
- The rate on the dollar-denominated deposits, also known as Eurodollars, traded between banks in London.
- COFI (cost of funds index)
- The cost of funds is indexed to the average interest rate that banks in particular states pay their customers. One of the most common indexes is the 11th district cost of funds index, which covers banks in California, Nevada and Arizona.